Timothy Glick v. KF Pecksland LLC ( 2017 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
TIMOTHY GLICK and RENEE )
GLICK, )
)
Plaintiffs, )
)
v. ) C.A. No. 12624-CB
)
KF PECKSLAND LLC, a Delaware )
limited liability company, THE )
BLEACHERS CORPORATION, a )
Delaware corporation, and SAMUEL )
KLEIN )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: August 10, 2017
Date Decided: November 17, 2017
Kenneth J. Nachbar, Zi-Xiang Shen, MORRIS, NICHOLS, ARSHT & TUNNELL
LLP, Wilmington, Delaware; Attorneys for Plaintiffs.
P. Clarkson Collins, Jr., Albert J. Carroll, MORRIS JAMES LLP, Wilmington,
Delaware; Attorneys for Defendants.
BOUCHARD, C.
In this post-trial decision, the Court finds that Samuel Klein fraudulently
induced Tim and Renee Glick into investing most of their life savings in a company
he used as his personal checking account on the promise that they would obtain an
ownership interest in another company called The Bleachers Corporation. Not long
after the Glicks entrusted Klein with their savings, Bleachers became defunct.
Klein lived lavishly and portrayed himself to the Glicks as a highly successful
businessman. He perpetrated the fraud by befriending the Glicks and gaining their
confidence before offering them the “once-in-a-lifetime opportunity” to invest in a
“white hot” Bleachers. He pitched the investment as a favor he was doing for the
Glicks out of friendship so that Tim, a homebuilder in Jackson, Wyoming, could
earn some easy money and have “skin in the game” to invest in a real estate joint
venture with Klein, which never materialized. The Glicks were not sophisticated
investors, as was readily apparent to Klein, and they expressed reservations about
investing their savings in Bleachers. To close the deal, Klein promised to personally
buy back their shares if things did not work out.
When the relationship ruptured, Klein reneged on his promise to buy back the
shares, which the record shows he never intended to keep. This lawsuit followed.
For the reasons explained below, the Glicks have met their burden under Wyoming
law to prove fraudulent inducement and are entitled to damages for the amount they
invested with Klein ($433,000) plus costs.
1
I. BACKGROUND
The facts recited in this opinion are my findings based on over 100 trial
exhibits, deposition testimony, and live testimony from three fact witnesses who
testified at trial: Tim and Renee Glick1 and Samuel Klein. I accord the evidence the
weight and credibility I find it deserves.
A. The Parties
Plaintiffs Tim and Renee Glick are married and reside together in Jackson,
Wyoming, with their three children.2 Tim owns and operates a business that designs
and constructs custom homes, named Dynamic Custom Homes (“Dynamic”).3
Renee is a stay-at-home mom who does some photography and makes gelato.4 Tim
attended Montana State University on a partial skiing scholarship, graduating in
1995.5 Renee graduated from the University of Massachusetts in 1999.6
Defendant Samuel Klein, who is in his early sixties, is a resident of
Greenwich, Connecticut.7 Klein does not have a college degree, but has a
1
I refer to the Glicks by their first names as they were used at trial for the sake of clarity.
No disrespect is intended.
2
Tr. 123 (Renee).
3
Pre-Trial Order (“PTO”) § II.1; Tr. 10-11 (Tim).
4
Tr. 124 (Renee).
5
Tr. 7-9 (Tim).
6
Tr. 122-23 (Renee).
7
Tr. 149-150 (Klein).
2
background in real estate and commercial property development, and portrays
himself as a sophisticated and wealthy businessman.8 Before 2010, Klein primarily
engaged in property development and management, focusing on hotels and
healthcare facilities.9 He once pled guilty to a criminal misdemeanor for failing to
maintain adequate nursing staff at a nursing home he operated, which resulted in
restrictions being placed on his ability to operate nursing homes in New York.10
Defendant The Bleachers Corporation (“Bleachers”) is a Delaware
corporation that was formed in 2010.11 Bleachers ceased to operate as of February
2017 and is now defunct.12 Defendant KF Pecksland LLC (“KF Pecksland”) is a
Delaware limited liability company that Klein created to hold Bleachers shares.13
Klein admits he used KF Pecksland as his personal checking account.14
B. The Early Years of Bleachers
In 2010, Klein established Bleachers with the goal of streaming real-time
video of sporting events using operated and stationary high-definition cameras.15
8
Tr. 150-51 (Klein); Tr. 13-14 (Tim).
9
Tr. 150 (Klein).
10
Tr. 227-29 (Klein).
11
JX004; PTO § II.3.
12
PTO § II.3.
13
JX036 Glicks202-03; PTO § II.4.
14
Tr. 229 (Klein).
15
Tr. 151-54, 277-78 (Klein).
3
Klein claims he started the company with an initial investment of approximately $3
million.16 Over the next two and a half years, Bleachers beta tested its streaming
technology at two private schools in Greenwich17 and hired employees who had
experience in sports technology from another sports startup.18 Bleachers’ business
model evolved over time to focus on installing fixed cameras at private and boarding
schools, where there is a high level of participation in sports and the students’
families tend to be wealthy and do not live nearby.19 Bleachers initially offered its
service as a “live streaming subscription on either a monthly or an annual basis.”20
Bleachers ended 2013 with a shareholders’ deficit of approximately $2,600,000.21
C. Klein Hires Tim to Build a Home in Jackson, Wyoming
Klein and Tim first met in 2008, when Tim bid on a vacation home
construction project for Klein.22 In 2013, Klein called Tim to discuss building a
home on a different piece of property in Jackson, Wyoming.23
16
Tr. 151-54, 277-78 (Klein); see also JX095 at 33-34 (Mommsen Dep.).
17
Tr. 154 (Klein).
18
Tr. 154 (Klein).
19
Tr. 153 (Klein).
20
JX095 at 73-74 (Mommsen Dep).
21
JX006 BL114.
22
Tr. 11-12, 81-82 (Tim).
23
Tr. 12 (Tim).
4
In or around October 2014, Dynamic entered into a contract with Klein’s
company, Sleeping Indian III (“Sleeping Indian”), for Dynamic to serve as the
general contractor to build a 8,100 square foot custom home for Klein.24 The
contract anticipated a maximum price of roughly $5.8 million, with price overruns
to be borne by Dynamic.25 Construction began in October 2014. Klein flew out to
Jackson on a private jet with his daughters for a ground breaking ceremony on the
property and photographed the event with a $22,000 camera he had just purchased.26
D. Klein Befriends the Glicks and Discusses Bleachers
In November 2014, Klein flew out to Jackson, again on a private jet, with
several family members.27 Renee prepared some gelato for Klein for his arrival.28
Klein invited Tim to ski with his family at Grand Targhee, a Wyoming ski resort,
and hired Tommy Moe, the former U.S. Olympian skier, as a guide for the ski trip.29
Throughout late 2014, Klein and Tim spoke several times a week via text, e-
mail, and on the phone.30 Tim soon considered himself to be Klein’s good friend,
speaking with him “maybe three or four times each week” and discussing “almost
24
Tr. 11-13 (Tim); Tr. 179-80, 256-57 (Klein).
25
PTO § II.5, Tr. 180-82 (Klein); JX100 at 21, 122 (Tim Dep.).
26
Tr. 12-13, 83 (Tim); Tr. 189-90, 256-57 (Klein).
27
Tr. 14 (Tim).
28
Tr. 124-125 (Renee).
29
Tr. 83 (Tim).
30
Tr. 15-16 (Tim).
5
anything that guy friends talk about,”31 including business, cars, their personal lives,
and Tim’s business model and how it could be improved.32
In December 2014, Klein invited Tim and Renee to a large party at a house he
was renting in Jackson at the high-end Amangani Resort.33 This was the first time
Renee met Klein. She brought two flavors of her gelato at Klein’s request.34 During
the party, Klein showed some of the guests videos Bleachers had taken.35
After the party, the Glicks, Klein, and his girlfriend went to dinner.36 They
discussed potential business opportunities for the Glicks.37 Klein flattered Renee,
telling her that her gelato was better than any he had ever tasted in Italy and that she
should commercialize it.38 They also discussed Bleachers, which Klein had
identified to Tim as the “source of his current income.”39 Klein described Bleachers
as “a new and upcoming business, that it was just skyrocketing,” and told the Glicks
31
Tr. 15-16 (Tim); accord Tr. 204-205 (Klein).
32
Tr. 16-17 (Tim); Tr. 261 (Klein).
33
Tr. 124-25 (Renee); accord Tr. 18-19 (Tim).
34
Tr. 124-25 (Renee).
35
Tr. 189 (Klein).
36
Tr. 18-19 (Tim); Tr. 124-125 (Renee).
37
Tr. 18-22 (Tim).
38
Tr. 124-25 (Renee).
39
Tr. 14-15 (Tim).
6
“schools were lining up to -- to be a part of Bleachers.”40 The discussion piqued the
Glicks’ interest in Bleachers.41
E. Tim and Klein Begin Exploring Business Opportunities Together
In late 2014 through early 2015, Tim and Klein spoke about the possibility of
working together on a real estate joint venture, considering it a natural fit with Tim’s
building experience and Klein’s work on real estate projects.42 Klein and Tim began
to discuss the terms of a joint venture more concretely in February 2015, and
explored a speculative housing project, i.e., purchasing a lot to build on and starting
construction before finding a buyer.43
In preparation for the potential venture, Klein “walked Tim through hours of
how construction financing works,”44 and Tim looked into recent purchases made
by other builders as well as available lots in Teton County.45 In response to Tim’s
analysis of the potential properties, Klein was consistently positive about Tim’s
knowledge of the local market.46 Both parties testified at trial that they were
40
Tr. 18-20 (Tim); accord Tr. 126 (Renee).
41
Tr. 14-15 (Tim); Tr. 126 (Renee).
42
Tr. 17-18 (Tim).
43
JX208 (email from Klein seeking to discuss investment in potential lot).
44
Tr. 185 (Klein).
45
JX205.
46
JX212; Tr. 25-26 (Tim); see also JX007; JX213.
7
committed to the project,47 but Klein’s trial testimony was inconsistent with his
deposition, where he testified that, by January or February 2015, he “just didn’t trust
the guy [Tim]” and “wanted to start working Tim out of the project” of constructing
his home.48
In early March 2015, Klein and Tim put in a “low-ball offer” on a piece of
property, which was rejected.49 Once Klein and Tim began working on their
potential joint venture, Klein told Tim he needed to have “skin in the game,”50 but
Tim did not have the capital to invest in such a venture.51
F. Klein Directs Tim to Inflate Withdrawals on Sleeping Indian’s
Loan Account with the Bank of Jackson Hole
Sleeping Indian, the entity that owned the property on which Tim was building
a house for Klein, obtained a loan from the Bank of Jackson Hole to finance the
construction.52 In February 2015, while Tim and Klein were discussing their
potential real estate joint venture, Klein directed Tim to inflate the progress of the
construction of Klein’s Jackson residence in order to secure the release of additional
47
Tr. 20 (Tim); Tr. 205 (Klein).
48
JX096 at 83-84 (Klein Dep.).
49
Tr. 26 (Tim); accord JX0211; JX0213.
50
Tr. 185 (Klein).
51
Tr. 39 (Tim).
52
In a construction loan, money is typically released as a builder certifies the degree of
completion of the construction to the homeowner’s representative and the bank. Tr. 27-
28, 110 (Tim).
8
funds from the bank, which went to Klein for his personal use.53 Specifically, Klein
directed Tim to inflate the degree of completion on the project in the certifications
submitted to the bank (while submitting accurate certifications to the homeowner’s
representative to conceal the overstatements) and to transfer the inflated amounts to
KF Pecksland, Klein’s company, or to Annie Klein, Klein’s daughter, immediately
after Dynamic received the draws from the bank.54
Apart from enriching Klein, this scheme hurt Tim by reducing the amount of
funds available from the bank for the actual costs of construction, placing Tim at
Klein’s mercy to make good on the difference. Bank records confirm that the total
amount of excess funds that Dynamic transferred to KF Pecksland was $2,423,608.55
Tim credibly testified that he did not “pocket any of the inflated amount.”56
G. Bleachers’ Performance Going into 2015
In 2014, in an effort to generate higher revenues, Bleachers modified its
business model from a subscription service with revenues coming from users (i.e.,
parents and students) to a school-pay model selling its services directly to schools.57
53
JX066; Tr. 28 (Tim); Tr. 189, 229 (Klein).
54
Tr. 28-29, 38 (Tim); Tr. 229 (Klein); JX066; JX207.
55
JX066 Glicks0265 (top chart).
56
Tr. 111 (Tim).
57
JX095 at 72-74 (Mommsen Dep.).
9
The company also secured additional funding and hired additional employees. 58
Despite these initiatives, Bleachers generated only $135,528 in revenue and suffered
a net loss of $2,493,700 for the year ended December 31, 2014.59 It was apparent
going into 2015 that Bleachers would need more capital to survive.60
H. Klein and the Glicks Discuss an Investment in Bleachers
In early 2015, Klein began to discuss having the Glicks invest in Bleachers.61
Klein told the Glicks that Bleachers was “successful” and “white-hot,” and that he
was offering the opportunity to invest “as a favor” to them so that they could use the
profits from Bleachers to “invest into the real estate venture together with [him].”62
Klein led Tim to believe that Bleachers was making money and was responsible for
Klein’s income and lavish lifestyle.63
In April 2015, Klein told Tim about an opportunity Bleachers had to stream
coverage of sports teams for Division III colleges64 and about “vast” opportunities it
had in Australia.65 Klein also told the Glicks that the Australian market was
58
Tr. 158-59, 191-92 (Klein); JX095 at 17 (Mommsen Dep.); JX05 BL174; JX06 BL114-
15.
59
JX006 BL113; Tr. 110-11 (Tim).
60
JX006 BL113; JX095 at 76, 79-80 (Mommsen Dep.).
61
Tr. 126 (Renee); Tr. 189 (Klein).
62
Tr. 39-40, 43-44 (Tim); Tr. 263 (Klein).
63
Tr. 14-15 (Tim).
64
Tr. 53-54 (Tim); Tr. 172-73 (Klein).
65
Tr. 192 (Klein); see also Tr. 45-46 (Tim).
10
“untouched” and promising for Bleachers.66 During this period, Klein was speaking
regularly with Richard Stokes, the chairman of the Australian Boarding School
Association (“ABSA”).67
Despite the optimism Klein expressed to the Glicks about Bleachers’
prospects, the Glicks voiced reservations about investing in it, particularly since the
amount Klein was asking for—$250,000—was most of their life savings.68 To
reassure them, Klein told Tim that they would “make millions” and that he would
“personally guarantee” their investment:
Q. And what did Mr. Klein say in response?
A. He – he said, “Don’t worry about this Tim. You’re going to make
millions. This thing is taking off like a – like a rocket. You’re going
to make so much money on that” – that he personally guaranteed me –
he knew it was such a good deal that he personally guaranteed me that
he would buy back our initial investment in Bleachers if anything went
wrong.
Q. Did Mr. Klein say that once, or more than once?
A. No. He said it multiple times to me.69
Klein once again repeated this personal guarantee during a call when Tim again
expressed reservations about making the investment:
66
Tr. 45-46, 51 (Tim).
67
Tr. 174 (Klein).
68
Tr. 41, 60 (Tim).
69
Tr. 41-42 (Tim).
11
Q. Do you have any particular recollection of any specific time that
Mr. Klein told you that he would buy back your initial investment if
something were to go wrong?
A. I do. One specific day, before we made our initial investment
into Bleachers, I was driving down the access road of Spring Creek
Ranch, down from Mr. Klein’s construction site. And I was speaking
to Mr. Klein. And I told him that, you know, I was really nervous about
this. And once again, he said, “Tim, don’t worry about this. This is a
no-brainer. It’s a once-in-a-lifetime opportunity. Invest your money.
I will personally guarantee that you will not lose money, and I will buy
back your stock if anything is to happen.”70
Renee did not hear Klein say that he would guarantee their investment, but she
confirmed that Tim told her about the guarantee at the time.71
I. The Glicks Make Their First Investment in Bleachers
On April 10, 2015, Klein sent an e-mail to Tim offering to sell an option to
purchase 1% of the outstanding shares of “Kf bleachers stock.”72 After seeing
Klein’s email, Tim asked whether there was a “cliff note or ‘for dummies’ version
of this document” because he and Renee “don’t ready [sic] many of these types of
documents or any for that matter.”73 Klein offered to speak to the Glicks and walk
them through the agreement.74
70
Tr. 42-43 (Tim).
71
Tr. 146 (Renee); see also Tr. 43 (Tim).
72
JX010; JX096 at 38-40 (Klein Dep.).
73
JX010.
74
Id.
12
The next day, Klein sent Tim a chart displaying Bleachers’ capitalization as
of April 1, 2015.75 On April 13 and 14, Klein sent Tim e-mails suggesting that
Morris Offit, whom Klein represented as a successful and savvy investor, was
interested in investing and helping develop Bleachers.76
On April 14, 2015, Tim and Renee received a Purchase and Sale Agreement
(the “First Purchase Agreement”). It provided that KF Pecksland would sell 688.184
shares of Class A Common Stock of Bleachers to the Glicks for $250,000.77 Klein
testified that he asked for $250,000 because he was not looking “to do hand-holding”
for a lower investment.78
The Glicks signed the First Purchase Agreement the same day they received
it.79 In a cover email to which the executed document was attached, Tim said to
Klein: “Thank you Sam, I greatly appreciate it.”80 Tim read the agreement before
signing it but testified that he “didn’t understand” it.81 Renee did not read the
agreement.82 Later that day, Klein sent Tim an email stating that he had “assigned
75
JX011.
76
Tr. 66-67 (Tim); JX014-15.
77
JX012.
78
Tr. 196-97 (Klein).
79
JX016.
80
Id.
81
Tr. 45 (Tim).
82
Tr. 145-46 (Renee).
13
my right in the stock to you and renee.”83 The Glicks wire transferred $250,000 to
KF Pecksland three days later, on April 17.84
In deciding to invest in Bleachers, the Glicks took the information Klein
provided them to heart and conducted limited research: they did not consult with an
attorney, did not receive financial statements or ask for information regarding the
valuation of Bleachers, and did not seek advice from their personal financial advisor
at Morgan Stanley.85 Tim briefly discussed the investment with his father, a retired
commodities trader, and “might have” done internet research on Bleachers, but
otherwise took Klein at his word.86
J. Klein and the Glicks Discuss the Joint Venture and Making a
Second Investment in Bleachers
On April 21, 2015, Klein sent an e-mail to update Tim on Bleachers’ efforts
to enter the Division III college sports market, stating that “[I] thought I had a
productive day . . . 400 schools!!”87 Tim responded that “[t]hats great!!!”88
Throughout April and early May, Klein continued to tell Tim about
opportunities Bleachers had in Australia, saying that Australia was a natural market
83
JX013; see also JX019.
84
Tr. 44, 93 (Tim).
85
Tr. 72-76, 81-83 (Tim).
86
Tr. 76-79 (Tim).
87
JX023.
88
Id.
14
for Bleachers because Australia is “a sports-crazy nation,” that “nobody was doing
this” in Australia, that it was a “wonderful market without competition,” and that he
and Bleachers were “going to Australia.”89
On May 3, 2015, after visiting a potential office space for their joint venture,
Tim went with Klein to Greenwich.90 Klein arranged the trip so that Tim could
examine the site of a potential demolition project for Morris Offit, whom Klein
portrayed as a good friend and previously identified as a potential investor in
Bleachers.91 During the trip, Tim visited a lot Offit was purchasing next to his home
with an old house on it that Offit wanted to demolish.92
On May 4, 2015, Klein took Tim out to dinner in Greenwich in a Ferrari.93
Klein told Tim while driving in the car that the Glicks’ initial investment in
Bleachers had doubled in value.94 Tim was excited, explaining: “how many times
in your life can you double your money, $250,000, in two, two and a half weeks.”95
89
Tr. 51 (Tim), 66 (Tim), 174 (Klein), 209 (Klein).
90
JX024.
91
Tr. 47, 66 (Tim); Tr. 161 (Klein).
92
Tr. 47 (Tim); Tr. 200-201 (Klein).
93
Tr. 48 (Tim); Ans. at ¶ 19 (Dkt. #10); JX096 at 112-13 (Klein Dep.).
94
Tr. 48 (Tim).
95
Tr. 48 (Tim).
15
Klein also talked about other investors and told Tim that Offit “was going to invest
$150 million into Bleachers.”96 Tim thought he had “gotten on the rocket.”97
On May 5, 2015, while standing in Klein’s kitchen in Greenwich, Klein told
Tim that a relative of his had to sell his Bleachers shares to make a down payment
on a house.98 Klein offered to sell the shares to Tim, again “as a friend,” telling him:
“‘Tim, here’s another opportunity if you want it. I’m offering it to you. Otherwise,
I would buy it, buy the stocks.’”99 The amount of the investment was $183,000.
Klein told Tim that he “needed to give him an answer immediately.” 100 Klein
reiterated that Offit was planning to invest $150 million, telling Tim that the Glicks
would have to invest “immediately, prior to Offit investing his $150 million, because
if Offit invested his $150 million first” then Tim would be unable to purchase at the
current valuation.101
Tim thought he would be purchasing Bleachers shares from Klein’s relative,
but he ended up purchasing an interest in KF Pecksland from Klein himself.102
96
Tr. 48 (Tim); see also Tr. 66-67, 90-91 (Tim).
97
Tr. 48 (Tim).
98
Tr. 49 (Tim).
99
Tr. 49 (Tim).
100
Tr. 49-50 (Tim); see also Tr. 270-71 (Klein).
101
Tr. 50-51 (Tim).
102
Tr. 49-50 (Tim); JX036.
16
Klein’s reference to a relative buying a house was a fabrication. As Klein admitted
in his deposition, the money went to Klein, who “had bills to pay.”103
On May 6, 2015, Tim’s last day in Greenwich, Klein forwarded Tim an e-mail
stating that Offit wanted Klein to “send Bleachers material” to a banker at Goldman
Sachs and to a man with a daughter at the “Hill School in Princeton” who “loves the
idea of Bleachers.”104
On May 9, 2015, after learning that she and Tim were getting another chance
to invest in Bleachers and that they already had doubled their initial investment,
Renee sent a message to Klein, saying “[y]ou are too kind! Thank you!!!!!! Thanks
for returning my husband also.”105 The next day, Klein texted Renee: “Happy
mommies day Renee, your man is a good man.”106 In truth, Klein harbored doubts
about Tim at this point in time.107
K. The Glicks Make a Second Investment
Klein imposed a May 13 deadline for the Glicks to make their second
investment,108 telling them it “was imperative” that the deadline be met or they
103
JX096 at 121 (Klein Dep.).
104
JX025.
105
Tr. 129 (Renee); JX008 Glicks600.
106
JX008 Glicks600.
107
JX096 at 83-84 (Klein Dep.).
108
Tr. 54 (Tim).
17
“could be messing something up for him and for Bleachers.”109 The Glicks “were
liquidating the rest of everything [they] owned” to meet the deadline but were
running into problems with their broker.110 Realizing they would not make the
deadline, Renee texted Klein in a panic at 2:45 p.m. on May 13:
It’s Renee……
I’m freaking out. Tim is freaking out. We……are freaking out.
…..if only there were a few more hours in the day…..and….we didn’t
have the time-difference of 2 hrs. We’ll be lucky if neither of us puke
tonight….or sleep.111
Klein replied that he would call the Glicks, stating that “[i]t’s quite serious . and I’m
stunned at what occurred.”112 Renee continued to text with Klein, noting how they
had requested the money but that since it was “diversified” and “nearly all of our
stock” it was taking additional time to transfer.113
At night on May 13, Klein called Tim and Renee, who spoke to Klein together
on a speakerphone. Renee recalled that Klein started “berating” and “scolding” the
Glicks, saying that the “wire transfer not going through was a really big deal” and
“very serious.” 114 Tim similarly recalled that Klein yelled at the Glicks for several
109
Tr. 133 (Renee).
110
Tr. 133 (Renee).
111
JX008 Glicks601.
112
Id.
113
Id. Glicks602.
114
Tr. 134 (Renee).
18
minutes about how they “screwed everything up” before he said that he would be
able to buy them an extra day.115
At some point during the call, Renee asked Klein whether or not the Glicks
should still transfer the $183,000 to Klein, or if it should be rerouted back to them.116
Klein immediately changed his tone. He suddenly started stressing how the Glicks
would “make millions of dollars” and that they “were going to need a financial
planner” to help them manage their new-found wealth.117 He reiterated that Offit
was “scheduled to invest $150 million” in Bleachers and said that he was “going to
help take Bleachers public on the stock exchange.”118
After the call, Klein texted the Glicks the name of Quincy Cotton, whom Klein
represented to be a financial planner and estate attorney who “was going to set up
[the Glicks’] future estate and money safety stuff.”119 Renee asked if Cotton would
work with them “even though we aren’t ‘high net worth individuals’ YET?”120 Klein
replied “you are and she will.”121
115
Tr. 55-56 (Tim).
116
Tr. 134-35 (Renee).
117
Tr. 56-57 (Tim); accord Tr. 134-135 (Renee).
118
Tr. 57 (Tim); accord Tr. 135 (Renee).
119
Tr. 135-36 (Renee); accord JX008 Glicks602-04.
120
JX008 Glicks603.
121
Id. Glicks604.
19
On May 14, 2015, before reviewing any documents for the transaction, the
Glicks wired $183,000 to Klein, whom Tim still considered a “very good friend.”122
Klein then sent Tim an e-mail with the subject line “183k for conversion to stock
which will be issued in both renee and timothy glick names.”123
L. Continued Discussions Regarding Bleachers Before the Glicks Sign
the Second Purchase Agreement
In May 2015, Klein updated the Glicks on Bleachers’ attempted entry into
Australia, reiterating that its opportunities were “vast” and “huge.”124 On May 20,
2015, Klein sent Tim an e-mail implying that Bleachers had signed several schools
in Australia: “We are going! Got 6 schools to start.”125 Tim replied “So cool!”126
On May 31, 2015, Klein sent Tim another e-mail stating that he just got off
Skype “with [the] aussies” and had “3 schools now with 2000 students per school
minimum and will have 3 others this week.”127 Tim replied “Nice work rain
122
Tr. 57-58 (Tim).
123
JX026.
124
See JX028; Tr. 192, 208-10, 263 (Klein).
125
JX028.
126
Id.
127
Id.
20
maker.”128 Klein responded that it was “funny you [Tim] know more than Ceo
haha.”129
Klein’s representations in the e-mails that Bleachers had signed up multiple
schools in Australia were false.130 Bleachers ultimately signed up only one
Australian school (Methodist Ladies’ College), and only for a beta test.131 Klein
blamed Richard Stokes, his contact at the ABSA, for providing him with inaccurate
information that he had conveyed to Tim.132 As of May 2015, Bleachers did not
even have the technological capability to provide its service in Australia.133
On May 26, 2015, Klein sent an e-mail to Tim reflecting the “economics” of
the Glicks’ total investment but, instead of reflecting a direct purchase of shares in
Bleachers, it depicted that the Glicks would receive “ownership of KF Pecksland
Equivalent to [a] New Share amount.”134 Tim responded that the “numbers seem to
make sense to me… at least the amount Renee and I have to put in and the purchase
128
JX032.
129
JX033.
130
JX096 at 137, 140-41 (Klein Dep.).
131
Id. at 135-41.
132
Id. at 136-37. As of May 2015, Bleachers had not even entered an agreement with
ABSA. See JX041; JX005 at BL176 (reflecting that ABSA contract was not signed until
July 2015).
JX096 at 138-40 (Klein Dep.) (explaining problems with “latency of the signal” in
133
Australia).
134
JX029.
21
price.”135 Klein replied that “its correct…I’ll have [my attorney] lipari issue the
shares.”136 Klein’s attorney, Joseph Lipari, was a shareholder and a board member
of Bleachers at the time.137
On June 1, 2015, Klein sent Tim several documents, namely a Purchase and
Sale Agreement (the “Second Purchase Agreement”), an Amended and Restated
Limited Liability Company Agreement of KF Pecksland LLC, and an
Assignment.138 The Assignment reflects that Klein assigned to the Glicks a 15.731%
interest in KF Pecksland in exchange for $433,000, i.e., the total amount that the
Glicks had invested with him in two installments.139 The Second Purchase
Agreement recites that Klein was the 100% owner of KF Pecksland.140 The same
day they received the documents, the Glicks signed and returned them to Klein.141
According to Klein, the documents for the first round of the Glicks’
investment were incorrect and needed to be restructured to reflect that the Glicks
were purchasing an interest in KF Pecksland, the only asset of which was Bleachers
135
JX030.
136
Id.
137
JX011; JX095 at 20 (Mommsen Dep.).
138
JX036.
139
Id. Glicks200.
140
Id. Glicks209.
141
JX036.
22
stock, and not a direct interest in Bleachers.142 There were no negotiations or
discussions concerning the Second Purchase Agreement.143
On the evening of June 1, 2015, Tim texted Klein to inquire about the status
of Offit’s investment in Bleachers: “Renee was wondering if offit closed. I didn’t
think that was happening for another week or two.”144 Klein replied “[n]ot yet” and
that he would let Tim “know the same day it happens.”145 Offit ultimately invested
only $650,000 in Bleachers—a small fraction of what Klein had represented he
would invest.146
M. The Relationship Between the Glicks and Klein Collapses
On June 3, 2015, Renee texted Klein:
Hey there!
So, I was just talking to Tim and……he was all stressed out. But I
wanted to make sure that you knew that the money you have of ours is
everyyyyyyything we had……plus some. I just wanted to make that
clear…. :-). (No pressure). LOL!147
Renee testified that the text was prompted by the fact that Klein had defaulted on
payments he owed Tim for constructing his Jackson residence and that Klein had all
142
Tr. 201-02 (Klein).
143
Tr. 204 (Klein); Tr. 46, 72-73 (Tim).
144
JX033 KFP423.
145
Id. KFP424.
146
Tr. 59 (Tim); JX096 at 128 (Klein Dep.); JX095 at 64 (Mommsen Dep.).
147
JX008 Glicks604.
23
of the Glicks’ “personal money.”148 Renee’s text prompted Klein to call Tim and
yell at him because he thought that it was “extremely inappropriate” for Renee to
reach out to him.149
In mid-2015, Klein and Tim formed an entity for their joint venture, which
they named Bond Realty Group.150 In early June 2015, Klein and Tim signed an
office lease for Bond Realty Group, and explored potential projects in the Jackson
area.151
In August 2015, Tim’s relationship with Klein ruptured after Tim billed Klein
$80,000 for a deposit for stone to be used to build Klein’s Jackson residence.152 At
the time, Klein had stopped making payments on the house and was $880,000 behind
in his payments, and Tim did not have funds to purchase the materials.153 When he
spoke to Klein about the matter, Klein threatened to sue him “with his high-priced
New York lawyers.”154
On August 27, 2015, Klein’s lawyer sent two letters to Tim. One letter set
forth certain requirements Klein was demanding as a condition to permit Tim to
148
Tr. 137 (Renee).
149
Tr. 137 (Renee).
150
PTO § II.13; Tr. 186 (Klein).
151
PTO § II.13.
152
Tr. 61-62 (Tim).
153
Tr. 62 (Tim).
154
Tr. 63 (Tim).
24
complete the construction of his home.155 The other letter formally terminated their
real estate joint venture.156 Believing he could not defend himself because Klein
“had all [his] money,” Tim signed and returned both letters to Klein’s lawyer on
August 28.157
The evening before, on August 27, 2015, Tim texted Klein and asked him if
he had “a timeline on when my bleachers stock would be sold.”158 Klein replied that
the Glicks’ stock “would be purchased at the – next event.”159 Later, on December
23, Klein told Tim during a phone conversation that he would buy out the Glicks’
interests by the end of January 2016, at which point he also would make Tim whole
on the construction payments for his Jackson residence.160
N. Additional Transactions Involving KF Pecksland
At various times between October 2015 and April 2016, Klein sold interests
in KF Pecksland to four other investors for approximately $1.2 million.161 In March
155
JX051 KFP595-96.
156
Id. KFP597-98.
157
Tr. 63-64 (Tim); JX051 KFP594.
158
JX050; Tr. 64 (Tim).
159
Tr. 65 (Tim).
160
Tr. 65 (Tim).
161
JX001; Tr. 178, 278 (Klein).
25
2017, some of these investors sued Klein for fraud in connection with his sale of
interests in KF Pecksland to them.162
In 2014 and 2015, Klein undertook a series of transactions that culminated in
obligating KF Pecksland to pay $6 million to Payton Lane Nursing Home, Inc.
(“Payton Lane”), an entity Klein owned, in exchange for a mortgage on the home
Tim was building for Klein in Jackson.163 The mortgage was “junior and subordinate
to” Klein’s construction loan in favor of Bank of Jackson Hole.164 Klein claimed at
trial that he was working to unwind this transaction because KF Pecksland could not
afford to pay the promissory note.165
O. Tim Stops Working on Klein’s Jackson Residence and Bleachers
Shuts Down
On April 4, 2016, Dynamic sent Sleeping Indian a notice that it was
terminating their contract and stopping construction on Klein’s Jackson residence.166
Since the summer of 2016, the Glicks and Klein have been engaged in litigation in
Wyoming relating to construction of the Jackson residence and in Connecticut
162
Tr. 279-80 (Klein).
163
JX300-05.
JX305 ¶¶ 1-2, 4. The mortgage made reference to a “Secured Promissory Note” that
164
was executed at the same time but was not included in the record. Id. ¶ 4.
165
Tr. 221-22 (Klein).
166
JX069; Tr. 218 (Klein).
26
relating to cash payments Klein made to Tim.167 As of February 2017, Bleachers
ceased operations.168 Its stock is worthless.
II. PROCEDURAL POSTURE
On April 28, 2016, the Glicks filed an action against Bleachers and KF
Pecksland to inspect books and records.169 KF Pecksland offered to produce certain
documents and represented that certain categories of documents did not exist,
including a “statement regarding the status of the business and financial condition
of KF Pecksland” and a “current balance sheet for the company, [and] any recently
filed federal, state, and local income tax returns.”170
On August 5, 2016, the Glicks filed their complaint in this action against KF
Pecksland, Bleachers, and Klein, asserting three claims.171 Count I asserts a claim
for breach of the First Purchase Agreement against all defendants for failing to
deliver $250,000 worth of Bleachers stock to the Glicks.172 Count II asserts a claim
for breach of fiduciary duty against Klein in connection with his management of KF
Pecksland.173 Count III asserts a claim for fraudulent inducement against Klein and
167
PTO § II.22; Tr. 218-19 (Klein).
168
PTO § II.3; Tr. 220 (Klein); JX095 at 5-6 (Mommsen Dep.).
169
Compl. (Dkt. 1).
170
JX081 ¶ 10.
171
Compl.
172
Id. ¶¶ 37-45.
173
Id. ¶¶ 46-51.
27
KF Pecksland.174 On April 19, 2017, the parties stipulated to dismiss Bleachers from
the action without prejudice.175
On April 21, 2017, KF Pecksland and Klein filed a motion in limine seeking
to exclude certain documents and testimony.176 The Court denied the motion in
limine, but permitted the parties to assert any evidentiary objections in their post-
trial briefs, with the understanding that any objections not presented in the post-trial
briefs would be waived.177 Evidentiary objections that were asserted in Klein’s post-
trial brief are resolved in a separate order filed with this memorandum opinion.
Trial was held on April 26, 2017. During the post-trial argument, the Glicks
abandoned Count I of their complaint because the relief they sought—the issuance
of $250,000 worth of Bleachers shares—was pointless given that Bleachers was
defunct and its shares worthless.178
III. ANALYSIS
This case is a classic “he said-she said” dispute where issues of credibility are
paramount. Thus, before analyzing the claims, I address the credibility of the
witnesses who testified at trial. In reaching my conclusions about credibility, I
174
Id. ¶¶ 52-58.
175
Stipulation and Order Dismissing Def. (Dkt. 58).
176
Defs.’ Motion in limine (Dkt. 59).
177
Tr. 4-6.
178
Post-Trial Tr. 50-51.
28
accord particular weight to the consistency of the witnesses’ testimony with the
written record and their prior statements, and to my observations of their demeanor
as they testified. As a general matter, both of the Glicks were highly credible but
Klein was not at all credible.
Throughout the case, but particularly during his cross examination, Klein was
evasive and would claim faulty recollection or delay answering until he was
confronted with a document or prior statement. For instance, in response to a simple
question about whether he had signed documents under oath without reading them,
Klein sought to evade the question before being confronted with his deposition
testimony where he admitted doing so.179 Similarly, in response to a question about
whether he had ever stolen money from a business partner, Klein denied doing so,
and then responded that “[y]ou’re going to point me to something that shows that I
did steal money from a business partner. So I'm just waiting.”180
Klein admitted in his trial testimony that he had been sanctioned by then-Vice
Chancellor Strine in a previous case. To my astonishment, however, he denied ever
seeing the transcript of the hearing in which he was sanctioned and at one point
179
Tr. 225-26 (Klein).
180
Tr. 237-38 (Klein).
29
denied knowing what the sanction was for, saying he “thought [it was] for not
showing up.”181
Klein flip-flopped in his testimony about misusing the proceeds from his
construction loan account with the Bank of Jackson Hole. In his deposition, Klein
falsely denied that KF Pecksland ever received cash from Dynamic.182 At trial, he
admitted he directed that money be transferred from Dynamic to KF Pecksland each
month beginning in February 2015.183 Klein also denied at trial ever “misapply[ing]
proceeds from bank loans before,” but had admitted doing so in deposition testimony
from the same action in front of then-Vice Chancellor Strine.184
In contrast to Klein, the Glicks were forthcoming in their testimony at trial,
and their demeanor on the stand suggested that they were answering honestly. Tim
181
Tr. 239, 241-42 (Klein). For context, the transcript was from a hearing in FHC Danbury
LLC v. LJA (Danbury), LLC, C.A. No. 2855-VCS (July 20, 2007), in which then-Vice
Chancellor Strine imposed sanctions on Klein after finding that Klein “stole” $178,000
from the account of a business owned 50/50 by Klein and another person “in clear violation
of” the Court’s status quo order. JX201 at 20, 27. Klein did not attend the hearing, but the
Court directed that his counsel, a partner at Richards, Layton & Finger, advise Klein about
the hearing. JX201 at 32. In the order accompanying this decision, I sustain Klein’s
objection to the introduction of the transcript as extrinsic evidence of character under Rule
404, and I do not consider it for that purpose in this decision.
Tr. 230 (Klein) (“Question: Did KF Pecksland ever receive cash from Dynamic Custom
182
Homes? . . . Answer: No.”); see also JX096 at 72 (Klein Dep.).
183
Tr. 229, 232-34 (Klein).
184
Pls.’ Post-Trial Opening Br. Ex. A at 194-201 (Klein admitting that he had filed an
affidavit with a bank requesting $300,000 to purchase furniture and fixtures for a hotel, but
that the money instead was directed to one of his companies “probably because we were
due money” and “money is a fungible commodity.”).
30
acknowledged his wrongdoing with respect to inflating the draws on the construction
loan account185 and was sincere in his retelling of each of his interactions with Klein
and how he discussed many of those events with Renee in real time. Although
Renee’s personal knowledge of the relevant events was more limited than Tim’s, she
testified clearly as to what she observed, did not observe, and did not adequately
recall.186
The Glicks’ version of events also better comported with the written record,
whereas many of Klein’s statements were inconsistent with documentary evidence,
his deposition testimony, or both. For example, although Klein denied at his
deposition pressuring the Glicks187 or setting a hard May 13, 2015 deadline for them
to make the $183,000 investment,188 Klein was forced to admit at trial that he did set
such a deadline,189 and text messages190 between the parties show that Klein
185
JX100 at 129-31 (Tim Dep.). Although Tim’s role in this scheme is troubling, there is
no evidence to suggest he personally profited from it. In reality, it caused him great harm.
186
See, e.g., Tr. 139-42, 145-46 (Renee).
187
JX096 at 111 (Klein Dep.).
188
Id. at 110-11, 120 (Klein Dep.) (“[I] told them that they didn’t have to do it. I told Tim
he didn’t have to do it. If they didn’t wire and it was problematic, we don’t need to do this,
but I said it is a credibility issue to me if you are not going to do it, so just let me know one
way or the other.”).
189
Tr. 270-271 (Klein).
190
JX008 Glicks601-602 (Klein texting that “[i]t’s quite serious . and I’m stunned at what
occurred. [JP] Morgan never wired” and that “I’m having a credibility issue. in the worst
way we can’t have this go south”).
31
definitely pressured the Glicks. This supports the Glicks’ testimony that Klein told
them, among other things, that they were “putting Bleachers in great danger” by
failing to meet the deadline.191 Similarly, as noted above, Klein testified during
discovery that KF Pecksland never received cash from Dynamic, only to admit at
trial that this was false after being confronted with emails from the bank
documenting the transfers to KF Pecksland.
In sum, in the instances discussed above and many others, Klein’s evasive and
inconsistent responses gave me the distinct sense that there was little chance of
getting a straight answer from him and that he was willing to say whatever was
convenient at the moment without regard for the truth. Tim and Renee, on the other
hand, were both very credible witnesses.
A. The Fraudulent Inducement Claim
The Glicks’ primary claim is that Klein fraudulently induced them to invest
$433,000 in Bleachers by making certain false and fraudulent statements. In briefing
the issue of fraud, both parties focused on Wyoming law, which I will apply.192
191
Tr. 55-59 (Tim); accord 134-35 (Renee).
192
Pls.’ Post-Trial Opening Br. 40; Defs.’ Post-Trial Answering Br. 48. Where a choice
of law provision does not govern, Delaware courts generally follow the “most significant
relationship” approach of the Restatement (Second) of Conflict of Laws when assessing
tort claims. Gloucester Hldg. Corp. v. U.S. Tape and Sticky Prods., LLC, 832 A.2d 116,
124 (Del. Ch. 2003). Here, Wyoming has the most significant relationship to the events
because (1) the relationship between the parties was centered there, (2) both parties have
residences there, (3) some of the challenged representations were made there, and (4) the
injury to the Glicks occurred there. See Restatement (Second) of Conflict of Laws § 145(2).
32
Under Wyoming law, three elements must be established by clear and
convincing evidence to prove a claim of fraudulent inducement:
A plaintiff alleging fraudulent inducement carries the burden of
showing by clear and convincing evidence that 1) the defendant made
a false representation intending to induce action by the plaintiff; 2) the
plaintiff reasonably believed the representation to be true; and 3) the
plaintiff suffered damages in relying on the false representation.193
Clear and convincing evidence requires a showing of “the kind of proof which would
persuade a trier of fact that the truth of the contention is highly probable.”194
To satisfy the first element of a fraudulent inducement claim, a plaintiff must
provide sufficient evidence that the defendant made a false factual statement195
relating to a material fact196 with either “knowledge of its falsity,” or “aware[ness]
that he did not have a basis for making the statement” to induce action.197 To satisfy
the second element, a plaintiff must prove that its belief in, and reliance on, the
defendant’s representation was reasonable under the facts presented.198 To satisfy
Claman v. Popp, 279 P.3d 1003, 1016 (Wyo. 2012) (citing Bitker v. First Nat’l Bank in
193
Evanston, 98 P.3d 853, 856 (Wyo. 2004)).
194
Alexander v. Meduna, 47 P.4d 206, 216 (Wyo. 2012) (citation omitted).
195
Sundown, Inc. v. Pearson Real Estate Co., Inc., 8 P.3d 324, 331 (Wyo. 2000) (holding
that “any false representation must relate to a matter of fact.”).
196
Universal Drilling Co., LLC v. R & R Rig Serv., LLC, 271 P.3d 987, 998 (Wyo. 2012)
(“[T]he injured party must show that the false representation pertained to a material fact.”).
197
Excel Const., Inc. v. HKM Eng’g, Inc., 228 P.3d 40, 48-49 (Wyo. 2010).
198
Dewey v. Wentland, 38 P.3d 402, 413 (Wyo. 2002).
33
the third element, a plaintiff must show that its reliance on the misrepresentation was
the cause of the harm.
The Glicks contend that Klein made essentially seven false or fraudulent
statements to induce their investment in Bleachers:
1. That Bleachers was “white hot”;
2. That Bleachers had a huge opportunity in the Australian market;
3. That Bleachers had a huge opportunity to provide services to
Division III schools;
4. That Klein was so sure that the investment in Bleachers would be
successful that he would personally guarantee the investment and
repurchase the Glicks’ shares if Bleachers was not successful;
5. That Bleachers did not need the money, and that Klein was
permitting the Glicks to participate in Bleachers as a friend;
6. That the value of Bleachers had doubled between the Glicks’ first
investment in Bleachers and their second, follow-on investment; and
7. That a very sophisticated investor, Morris Offit, was going to invest
$150 million in Bleachers.199
The first three statements fail to satisfy the first element of a fraudulent inducement
claim because they do not constitute false statements of fact. Rather, the assertions
that Bleachers was “white hot” or had “huge opportunities” in Australia or in the
199
Pls.’ Post-Trial Reply Br. 1.
34
Division III college market amount to expressions of intention, hope, or opinion
about future matters that are not actionable under Wyoming law.200
The fourth and fifth statements go together. The sixth and seventh statements
occurred after the Glicks made their first investment of $250,000, and thus are
relevant only to their decision to make the second investment of $183,000. I discuss
each of these statements below.
1. The Personal Guarantee
The Glicks contend that Klein represented to Tim that: he was so confident
about Bleachers’ prospects that he would personally guarantee them that they would
not lose money, he would repurchase their shares if anything went wrong, and he
was offering the investment essentially as a “favor” to his friends so that Tim would
have “skin in the game” to participate in a joint venture with Klein. Klein
vehemently denies making any such statements, although he admits to telling Tim
200
See Bushnell v. Elkins, 245 P. 304, 308 (Wyo. 1926) (fraud case could not stand where
representations complained of “were merely opinions, or expressions of hope, or
expectation that the business of the corporation would be successful”); Sundown, 8 P.3d at
331 (“opinions [] are not actionable under the law”); Farmers’ Lumber Co. v. Luikart, 256
P. 84, 86 (Wyo. 1927) (quoting First Nat’l Bank v. Swan, 23 P. 743, 750 (Wyo. 1890)) (a
representation “‘which relates to the future, or which depends upon contingencies which
may or may not happen, furnishes no foundation for a claim of fraud or deceit’”). These
statements also resemble “puffing” that should be viewed as opinion and “discounted as
such by the buyer” due to “broad, vague, and commendatory language.” W. Page Keeton
et al., Prosser and Keeton on the Law of Torts § 109, at 756–57 (5th ed.1984).
35
that he needed to have “skin in the game” for the real estate venture that never
materialized.201 The issue boils down to one of credibility and the parties’ conduct.
I find it highly probable that Klein made the personal guarantee
representations to Tim as Tim testified.202 Tim was a very credible witness and I
credit his specific testimony on this issue, which is corroborated by Renee’s
testimony that Tim told her about the personal guarantee at the time. Tim’s
testimony is further corroborated by the fact that when he invoked the guarantee in
August 2015, Klein did not take issue with Tim’s request to be bought out, which
one would expect if Klein had never promised to do so. To the contrary, consistent
with having made the representation, Klein said that the Glicks’ shares “would be
purchased at the – at the next event.”203 A few months later, in December 2015,
Klein again did not challenge the notion that he had a responsibility to repurchase
the Glicks’ shares, but instead told Tim that he would buy out the Glicks shortly
after the year-end.204 Klein was not a credible witness and I do not credit his denial
of the personal guarantee.
The personal guarantee representation was clearly material to the Glicks and
induced their investment because it was made to assuage their stated reservations
201
Tr. 185 (Klein).
202
See supra Section I.H.
203
Tr. 65 (Tim); JX050.
204
Tr. 65-66 (Tim).
36
and nervousness about investing most of their life savings in Bleachers. Both of the
Glicks testified credibly about how important the guarantee was to their decision to
invest with Klein.205
Although the general rule under Wyoming law “is that fraud ordinarily cannot
be founded upon a representation which is promissory in nature,” there is an
exception that applies when a person makes such a representation with no intention
of performing the promise:
This general rule, however, is subject to an exception to the effect that
if the representation, although promissory in nature, is made with no
intention of performing it or with a present intention not to perform, it
may then serve as a foundation for an action in fraud; one of the
justifications for the exception being that there does exist a
misrepresentation of a present fact, that is, the intention of the
promissor.206
Consistent with this doctrine, Klein made no argument in his post-trial brief that the
personal guarantee could not form the basis of a claim for fraudulent inducement
because of its promissory nature.
I also find it highly probable that Klein never intended to perform on the
guarantee. This is borne out by his contemporaneous and subsequent conduct. By
the time he made the personal guarantee representations to Tim, Klein had decided
that he did not trust Tim and wanted to work him out of his home construction
205
JX099 at 52-53 (Renee Dep.); Tr. 127 (Renee); Tr. 89 (Tim).
206
Johnson v. Soulis, 542 P.2d 867, 872 (Wyo. 1975).
37
project.207 Yet during this same period, Klein directed Tim to inflate the draws on
the construction loan, which enriched Klein and gave him leverage over Tim. It is
inconceivable in my view that Klein ever had any intention to honor an oral
guarantee to buy back the Glicks’ investment in Bleachers when, at the time he made
the promise, Klein was leading Tim on about undertaking a real estate joint venture
that he had no apparent intention of pursuing208 and was putting Tim in a financial
straightjacket on his home construction project.
Klein’s subsequent conduct, which may be considered under Wyoming
law,209 further supports this conclusion. Specifically, after Tim asked to be bought
out in the latter part of 2015, Klein had several opportunities to return the Glicks’
investment with relative ease, without using his own money and despite the
illiquidity of the KF Pecksland shares, since he sold shares of KF Pecksland to four
other investors for $1.2 million from October 2015 to April 2016. The obvious
reason Klein did not utilize any of those opportunities to arrange a purchase of the
Glicks’ shares is because he never had any intention of buying them back.
207
JX096 at 83-84 (Klein Dep.).
208
I discredit Klein’s trial testimony that his interest in the real estate joint venture was
sincere at this point (see Tr. 183-85 (Klein)) given his admission in his deposition that he
did not trust Tim by early 2015 (see JX096 at 83-84 (Klein Dep.)) and given Klein’s overall
lack of credibility.
209
See Positive Progressions, LLC v. Landerman 360 P.3d 1006, 1015-16, 1018 (Wyo.
2015) (considering subsequent conduct as evidence of intention not to perform).
38
For the reasons explained above, I find that the Glicks have established by
clear and convincing evidence that Klein intentionally made a false representation
when he promised to repurchase the Glicks’ shares in order to induce the Glicks to
invest in Bleachers. Thus, the Glicks have satisfied the first element of a claim for
fraudulent inducement under Wyoming law.
With respect to the second element of the claim, the almost “too good to be
true” nature of the personal guarantee initially gave me pause about the
reasonableness of the Glicks’ belief in Klein’s representation. One naturally would
be skeptical that a financial investment could have no downside risk—other than the
risk of Klein reneging on his word. But the circumstances under which the
representation was made firmly convince me otherwise.
As discussed above, Klein expressed great bullishness on Bleachers’
prospects, touting that it was “white hot,” had huge opportunities in Australia and in
the Division III college market,210 and repeatedly telling Tim how confident he was
that it would make money.211 He also spent a lot of time with Tim, and to a lesser
extent with Renee, talking about an array of personal and business matters to gain
210
Tr. 173-174, 263 (Klein); Tr. 45-46, 66-67 (Tim).
211
Tr. 72 (Tim) (“And he told me that we were going to make a lot of money. ‘Don’t worry
about it.’ He was so certain of it that he personally guaranteed it.”); Tr. 89 (Tim) (discussing
how Klein had told Tim a “number of times that he -- he was so sure of Bleachers, that we
were going to make money, and a lot of money, that he -- he would personally guarantee
it.”); Tr. 90 (Tim) (“Mr. Klein told me that he would personally guarantee the investment.
He told us that we were going to make millions of dollars. I trusted him.”).
39
the Glicks’ confidence. Against this backdrop, Klein pitched selling them a piece of
Bleachers as something he was doing “as a favor” out of friendship so that they could
have “skin in the game” and participate in a promising real estate joint venture with
him.212 Tim and Renee both credibly testified that they trusted Klein, that the
guarantee was important to their decision to invest, and that they were appreciative
of what he was doing for them.213
Adding credence to the fact that the promise was done out of friendship, and
to help Tim raise money for their venture, is the fact that Klein continued to express
his desire to help Tim out by arranging for Tim to work with Offit just as the Glicks
were being asked to sign the First Purchase Agreement on April 14, 2015. Starting
at 6:45 a.m. that morning, Klein sent Tim several e-mails suggesting that Offit would
hire Tim for the demolition and construction of a new home. Klein’s first e-mail
reported that “[Offit] will pay you a supervisory fee of 15k plus travel (youll [sic]
stay at my home).”214 Six minutes later, Klein stated “funny, [Offit] asked if you
could do a design build,” and provided information about the bids Offit had received.
Tim replied that he could not “see why we couldn’t beat that.”215 At 9:01 a.m., just
212
See Tr. 39 (Tim) (discussions about starting a joint venture began “late 2014 and then
really kind of February, March, April of 2015, we really -- we spoke quite often about real
estate development and what we might be able to do together as a team in Jackson”).
213
Tr. 39-40, 43-44, 57-58, 89 (Tim); Tr. 127 (Renee); JX099 at 30-31, 37 (Renee Dep.).
214
JX014.
215
JX014 (emphasis added).
40
fifteen minutes after sending the Glicks the First Purchase Agreement,216 Klein sent
Tim yet another e-mail, explaining that the job would be lucrative and suggesting
that Tim already had the job: “[Offit] would take a blended deal at 16% and at
10,000 at 450 sqft that’s 720k fee. . . either way its [sic] your job . . i cant take a cent
as hes [sic] a partner.”217 And, four minutes later, at 9:05 a.m., Klein continued to
tout Bleachers’ prospects by forwarding Tim an email from Offit saying that the
chairman of the Gilman School board was “intrigued with Bleachers.”218
The Glicks were an easy mark for Klein’s pitch. Although Tim had achieved
a degree of success as a home builder, he and Renee were not sophisticated investors,
and Klein knew it. The emails and text messages the Glicks exchanged with Klein
displayed an obvious naiveté about financial matters.219 In other words, the personal
guarantee was offered to the Glicks out of ostensible friendship by someone who
portrayed himself as extremely wealthy and had the resources to make such a
216
JX012 (email from Klein to Tim at 8:47 a.m. on April 14, 2015, forwarding copy of
First Purchase Agreement for the Glicks to sign).
217
JX014.
218
JX015.
219
See JX010 (asking if there was a “cliff note or ‘for dummies’ version of this document
[warrant agreement]”); JX023 (Tim asking Klein whether “ESPN [would] be considered
your competition”); JX030 (in response to Second Purchase Agreement, Tim noted how
the “numbers seem to make sense to me… at least the amount Renee and I have to put in
and the purchase price.”); JX008 Glicks599-601 (discussing how the Glicks trust Klein
“unconditionally” and will “be family with you for the next 55 years”); Tr. 16-17 (Tim)
and Tr. 185, 261 (Klein) (discussing how Klein walked Tim through hours of construction
financing and discussed how to improve Tim’s business model).
41
representation credible. The sale of shares and guarantee also were offered out of
an expressed interest in cultivating a larger relationship with Tim in order to make
possible a real estate venture that could be mutually beneficial, and so did not appear
to be an act of mere charity. Given this context, I find that the Glicks have met their
burden to prove by clear and convincing evidence that their belief in Klein’s
representation that he would personally guarantee their investment in Bleachers was
reasonable.
Wyoming law bars recovery if the complaining party “blindly relies upon a
representation, the falsity of which would be obvious to him upon a cursory
examination or investigation.”220 It is unclear, however, what evidence the Glicks
could have uncovered to show that Klein was unwilling to repurchase their shares.
Other than invoking language from the First Purchase Agreement, discussed below,
Klein points to none. In short, there was no “available evidence of a defect” to put
the Glicks on notice that Klein’s statements about the personal guarantee were
false,221 and nothing in the record suggests that “investigations would have easily
disclosed the true situation.”222 Indeed, the only evidence of Klein’s true intentions
220
Dewey, 38 P.3d at 413.
221
Claman, 279 P.3d at 1016-18 (finding reliance to be unreasonable where plaintiff who
sued for subsidence-causing defects of a house had the opportunity to view the property,
the defects were readily visible, and where defendant truthfully disclosed to plaintiff in
property condition statement that house was in subsidence area).
222
Farmers’, 256 P. at 86.
42
was in Klein’s control, and his willingness to make misrepresentations is clearly
established.
Klein’s main defense is that the Glicks could not have reasonably relied on a
representation that he would repurchase their investment because the purchase
agreements they signed “purport to fully express the parties’ accord [and] nothing in
them provides for a repurchase.”223 Klein focuses in particular on a representation
in the First Purchase Agreement stating that the purchaser could afford “a complete
loss” of the value of the purchased shares and is “able to bear the economic risk” of
holding such purchased shares “for an indefinite period.”224
The record reflects, however, that Klein portrayed the purchase agreements
he sent the Glicks, which were generic in nature, to be a mere “formality.”225 This
223
Defs.’ Post-Trial Ans. Br. 60.
224
Id. (quoting JX016 § (B)(3)(d)). Both of the purchase agreements contained generic
integration clauses but did not contain an express disclaimer from the purchasers of reliance
on representations made before signing. See JX016 § (E)(2); JX036 Glicks211 § (E)(2).
225
Tr. 46, 86 (Tim) (testimony that Klein repeatedly referred to agreements as a
“formality”); cf. JX010 (sending e-mail “warrant offer” to the Glicks, and stating that “this
may be the shortest form . they usually run 12 plus pages . Lemme walk you thru it and see
if we can simplify further . I’m a big fan of less complicated.”); JX012 (e-mail from Klein
enclosing the First Purchase Agreement in which the only text in the body was “you and
renee should sign page 4 and return by pdf…KEEP THE ORIGINAL FOR YOUR
RECORDS….” and which failed to include Exhibits A and B referred to in the First
Purchase Agreement); JX030 (e-mail on May 26, before the Glicks entered into Second
Purchase Agreement, where in response to Glicks statement that “numbers seem to make
sense” Klein responded “its correct…i’ll have [my attorney] lipari issue the shares”);
JX036 (e-mail enclosing the Second Purchase Agreement reflecting that Klein was
forwarding to Tim “to cut down on legal expense”).
43
is confirmed by the lack of any negotiation over their terms and the slipshod manner
in which the purchase agreements were prepared. For example, Klein testified that
the First Purchase Agreement was inaccurate, which led to it being replaced by the
Second Purchase Agreement.226 And, reflective of its lack of importance, the key
representation in the First Purchase Agreement on which Klein relies—that the
purchaser could afford the risk of loss and hold the shares indefinitely—was omitted
from the Second Purchase Agreement.
In circumstances similar to this case, the Supreme Court of Wyoming in recent
years has disregarded the express terms of a contract to protect against fraud. In
2015, for example, in Positive Progressions, LLC v. Landerman, a plaintiff proved
at trial that she had been fraudulently induced to sign a contract where she “had
reason to and did rely on the representations of” a party who held himself out as an
“ethical and responsible businessman.”227 While “especially conscious of parties’
freedom to contract,” the Supreme Court of Wyoming nevertheless declined to bar
her claim based on the written agreement, opting to adopt the law of a sister state in
order to protect against fraudulent conduct:
We are of the same opinion as the Supreme Court of Idaho:
226
Tr. 201-02 (Klein). Further, many documents purported to be prepared and attached to
the First Purchase Agreement were not. See JX016.
227
360 P.3d at 1018. The plaintiff in Positive Progressions did not read the final agreement
she signed at all.
44
While normally the terms of a written contract will control, Idaho
law firmly allows that “[f]raud in the inducement is always
admissible to show that the representations by one party were a
material part of the bargain.” “[A]greements and
communications prior to or contemporaneous with the adoption
of a writing are admissible in evidence to establish fraud.” Fraud
vitiates the specific terms of the agreement and can provide a
basis for demonstrating that the parties agreed to something apart
from or in addition to the written documents.228
Just last year, in Rogers v. White, the Supreme Court of Wyoming similarly held that
“[w]hen one party uses fraudulent or intentional misrepresentations or nondisclosure
to induce the other party into a contract, an ‘as is’ clause or disclaimer does not bar
the induced party from recovery.”229 Klein did not identify any contrary Wyoming
authority suggesting that a generic integration or disclaimer clause would prohibit
recovery for fraud.
Here, similar to Positive Progressions, the Glicks had reason to and did rely
on the representations of someone who held himself out as a friend doing them a
favor but, unbeknownst to them, intentionally deceived them into giving him their
life savings based on a promise to repurchase their shares that he never intended to
keep. In my opinion, Wyoming law would not bar a fraudulent inducement claim
under these circumstances based on generic representations in an agreement the
parties viewed as a formality. As the Rogers court explained, “‘[a] perpetrator of
228
Id. at 1019 (citations omitted).
229
366 P.3d 1264, 1271 (Wyo. 2016) (citations omitted).
45
fraud cannot close the lips of his innocent victim by getting him blindly to agree in
advance not to complain against it.’”230
Finally, the Glicks have proven that they “suffered damages in relying on the
false representation” Klein made to them.231 As a direct result of Klein’s refusal to
honor the guarantee, the Glicks lost a total of $433,000 and are entitled to
consequential damages for that amount.232
2. The Offit and “Doubled Value” Representations
The Glicks contend that Klein made two additional representations that
fraudulently induced them to make the second investment of $183,000: (1) that a
very sophisticated investor, Morris Offit, was going to invest $150 million in
Bleachers imminently; and (2) that the Glicks’ Bleachers stock had doubled in value
in the few weeks since they made their first investment. It is not necessary to parse
the record to decide whether the Glicks met their burden to demonstrate that Klein
made these representations, which indisputably would have been false. Even
assuming for the sake of argument Klein did, the Glicks have failed to show by clear
230
366 P.3d at 1271 (quoting Snyder v. Lovercheck, 992 P.2d 1079, 1086 (Wyo. 1999)).
231
Claman, 279 P.3d at 1016 (citing Bitker, 98 P.3d at 856).
232
Wyoming law recognizes that consequential damages are an appropriate remedy for
fraudulent inducement. See Jurkovich v. Tomlinson, 905 P.2d 409, 412 (Wyo. 1995)
(discussing how compensatory damages appropriate remedy for fraudulent inducement and
denying rescissionary damages); Alexander, 47 P.3d at 217 (awarding compensatory
damages in fraudulent inducement case).
46
and convincing evidence that they reasonably relied on these representations and
thus cannot sustain their fraudulent inducement claim based on them.
As noted above, under the law of fraudulent inducement in Wyoming, “one
cannot recover if he blindly relies upon a representation, the falsity of which would
be obvious to him upon a cursory examination or investigation.”233 Here, in the face
of factual assertions about a specific sum Offit was going to invest in Bleachers
imminently, and about a dramatic increase in the value of their initial investment in
Bleachers in a short period of time, the Glicks did not attempt to conduct even the
most cursory form of investigation.
Unlike the situation with the personal guarantee, there were obvious ways the
Glicks easily could have investigated these particular representations. For instance,
concerning Offit’s putatively imminent $150 million investment, the Glicks could
have asked Klein to provide a copy of a document reflecting the commitment or Tim
could have spoken to Offit himself to confirm it. Tim visited Offit’s property in
233
Dewey, 38 P.3d at 413; see also White v. Ogburn, 528 P.2d 1167, 1171 (Wyo. 1974)
(“We do not say that plaintiffs could not rely upon representations made to them by the
defendants, but they could not blind themselves to observe the readily available facts and
place reliance upon such alleged misrepresentations without making a diligent inquiry of
these facts.”); Schaffer v. Standard Timber Co., 331 P.2d 611, 615 (Wyo. 1958) (“persons
now complaining to have been misled were obligated to use the ordinary means of
information available to them . . . under the circumstances.”); Farmers’, 256 P. at 86
(quoting First Nat’l Bank, 23 P. at 750 (“A party . . . cannot, when the opportunity is before
him, and there is nothing in the situation of the parties to prevent investigation, decline to
prosecute a reasonably diligent inquiry, refuse to exercise his own judgment, and then be
heard to complain [of fraud].”).
47
Greenwich in early May and had spoken to Offit on the phone about the demolition
project.234 Tim had access to Offit and was in a position to make the inquiry, but he
never tried.235
As to the doubling of the value of the Glicks’ initial investment, Tim could
have asked for some documentation reflecting the valuation of the Bleachers shares,
such as a financial statement or evidence of recent sales at a higher valuation. At a
minimum, Tim could have asked Klein to explain what had happened during the two
and a half weeks since the Glicks made their initial investment that caused it to
double in value in such a short period of time.
Had the Glicks made any attempt to kick the tires about these representations,
it is likely that they would have become suspicious about their veracity. But given
their failure to make any effort to investigate the truth of the doubling and Offit
investment representations, I cannot find that the Glicks have established by clear
and convincing evidence under Wyoming law that their reliance on these
representations was reasonable.
234
Tr. 47, 91-92 (Tim); Tr. 200-201 (Klein).
235
Tr. 92 (Tim). Tim testified vaguely that “Klein always was very particular on how [he]
spoke to Mr. Offit,” but he did not say that he had been instructed not to do so. Id.
48
B. The Negligent Misrepresentation and Constructive Fraud Claims
Shortly before and after trial, the Glicks sought to introduce two additional
claims that were not pled in their complaint, for negligent misrepresentation and
constructive fraud.236 The parties disagree over whether these claims were tried by
implied consent of the parties and thus may treated as if they had been raised in the
pleadings under Court of Chancery Rule 15(b). I do not reach this issue and need
not analyze these claims for two reasons.
First, because the Glicks have proven their entitlement to an award of damages
for the full amount they invested with Klein under their claim for fraudulent
inducement, they would not be entitled to any further recovery under either theory.237
Second, with one exception, the Glicks have not identified any representation
or concealment that could serve as an additional basis for recovery under either
theory. The exception is the admittedly false representation Klein made to Tim in
emails on May 20 and 31, 2015 that Bleachers had entered into contracts with
multiple schools in Australia.238 On this score, Klein blames Richard Stokes of the
ABSA for sending bad information to him.239 Klein could be liable for negligent
236
See Pls.’ Pre-Trial Br. 29-30 (asserting equitable fraud claim); Pls.’ Post-Trial Opening
Br. 46-49 (asserting constructive fraud and negligent misrepresentation claim).
237
See Brandin v. Gottlieb, 2000 WL 1005954, at *1 (Del. Ch. July 13, 2000) (declining
to reach breach of fiduciary duties where party prevailed on contractual claims).
238
JX028 (May 20, 2015 e-mail); JX032 (May 31, 2015 e-mail).
239
Tr. 264-267 (Klein) (quoting JX096 at 136-138 (Klein Dep.)).
49
misrepresentation if he failed to exercise reasonable care before forwarding this
information to Tim and if the Glicks relied on it.240 The Glicks, however, already
had wired the funds for their second and final investment on May 14, before Tim
received the May 20 and 31 emails from Klein, and thus would not be able to
establish that they justifiably relied on these representations.
C. The Breach of Fiduciary Duty Claim
In Count II of their complaint, the Glicks assert a claim for breach of fiduciary
duty against Klein as the manager of KF Pecksland. The manager of a Delaware
limited liability company owes the traditional fiduciary duties of loyalty and care to
its members unless the LLC agreement provides otherwise.241 The KF Pecksland
LLC Agreement does not modify or eliminate the manager’s fiduciary duties.242
Thus, Klein owed a fiduciary duty to the Glicks once they became members of KF
Pecksland. Defendants do not contend otherwise.
240
See Hulse v. First Am. Title Co. of Crook Cty., 33 P.3d 122, 138 (Wyo. 2001) (citation
omitted) (“One who, in the course of his business, profession or employment, or in any
other transaction in which he has a pecuniary interest, supplies false information for the
guidance of others in their business transactions, is subject to liability for pecuniary loss
caused to them by their justifiable reliance upon the information, if he fails to exercise
reasonable care or competence in obtaining or communicating the information.”).
241
Auriga Capital Corp. v. Gatz Props., 40 A.3d 839, 856 (Del. Ch. 2012), aff’d, 59 A.3d
1206 (Del. 2012); see also 6 Del. C. § 18-1101.
242
JX036 Glicks202-05.
50
The relief the Glicks seek for their fiduciary duty claim is an award of money
damages.243 Thus, to sustain their claim under Count II, they have the burden to
prove, by a preponderance of the evidence, not only that Klein breached a fiduciary
duty owed to them, but that they suffered damages as a result of the breach.244 An
award of “[d]amages cannot be speculative or uncertain . . . but must be at least based
on a reasonable estimate.”245
The Glicks contend that Klein breached his fiduciary duties in four respects.
First, they assert that Klein failed to cause KF Pecksland to maintain appropriate
books and records, citing Klein’s admission that KF Pecksland has no financial
statements, balance sheets, profit and loss statements, meeting minutes, or
resolutions.246 Klein’s failure to maintain such basic corporate records is egregious
and suggestive of gross negligence that would sustain a breach of the duty of care,
243
PTO § IV.A.3.
244
See Hampshire Grp., Ltd. v. Kuttner, 2010 WL 2739995, at *50 (Del. Ch. July 12, 2010)
(discussing need for causation and sufficiently quantifiable harm for damages in breach of
fiduciary duty case).
245
Cincinnati Bell Cellular Sys. Co. v. Ameritech Mobile Phone Serv. of Cincinnati, Inc.,
1996 WL 506906, at *20 (Del. Ch. Sept. 3, 1996), aff’d, 692 A.2d 411 (Del. 1997)
(quotation and citation omitted) (declining to award of damages in suit alleging
mismanagement).
246
JX081 ¶ 10 (Answer to Books and Records Compl.). Klein also admitted in his answer
that KF Pecksland had no tax returns, but he testified at trial they had been filed “a few
weeks ago.” Tr. 282-83 (Klein)
51
and perhaps bad faith.247 The Glicks, however, put forward no evidence to quantify
how Klein’s alleged mismanagement harmed them apart from seeking the return of
the $433,000 they paid for interests in KF Pecksland as a result of Klein’s fraudulent
conduct. More broadly, the Glicks failed to proffer any expert or lay evidence on
the issue of damages they suffered directly—as opposed to harm the LLC suffered—
as a result of any of Klein’s alleged breaches of fiduciary duty.
Second, the Glicks contend that Klein breached his fiduciary duties by
admittedly using KF Pecksland’s funds as his “personal checking account.”248 KF
Pecksland received millions of dollars from the scheme Klein orchestrated to inflate
the draws on the construction loan for his Jackson residence, which Klein took for
himself.249 Once again, however, the record is devoid of evidence showing how the
Glicks personally suffered damages as members of KF Pecksland as a result of this
scheme as opposed to harm that the LLC may have suffered.
Third, the Glicks assert that Klein usurped a corporate opportunity by selling
his personal interests in KF Pecksland to certain individuals instead of selling to
them Bleachers shares held by KF Pecksland, which would have resulted in KF
Pecksland receiving the proceeds of such sales. Apart from failing to prove they
247
The KF Pecksland LLC Agreement does not exculpate its managers for breaches of the
duty of care. See JX036 Glicks202-05.
248
Tr. 228-231 (Klein).
249
JX066; Tr. 229 (Klein).
52
suffered damages personally as a result of this conduct, the Glicks failed to establish
that an opportunity was available to KF Pecksland. I have my suspicions about what
happened to these individuals, but the fact of the matter is that there is no evidence
in the record about whether they were interested in acquiring Bleachers stock or an
interest in KF Pecksland.
Finally, the Glicks assert that Klein breached his fiduciary duties by obligating
KF Pecksland to pay $6 million to Payton Lane, another of Klein’s entities, via a
promissory note exchanged for a subordinated mortgage on Klein’s Jackson
residence. This was a plainly self-interested transaction, which has all the indicia of
being unfair to KF Pecksland. Apparently recognizing as much, Klein testified that
the transaction is being unwound.250 Whether or not that is true cannot be discerned
from the record, but what is evident is that the Glicks submitted no evidence
quantifying the harm this transaction caused them.
In sum, the Glicks’ fiduciary duty claim raises many troubling issues
concerning Klein’s conduct as a fiduciary of KF Pecksland. The evidence suggests
that Klein could be liable for harm caused to the LLC by using its accounts for
personal purposes, diverting corporate opportunities to himself, and unfairly
encumbering KF Pecksland with a $6 million promissory note. But the Glicks failed
250
Tr. 222 (Klein).
53
to submit evidence to establish that they were harmed directly by Klein’s alleged
breaches of fiduciary duties, and they did not seek to assert a derivative claim on
behalf of KF Pecksland. It is understandable why the Glicks did not litigate each of
these issues to the ground given the amount at stake in this case, but the bottom line
result is that the Glicks failed to submit sufficient proof to establish a right to
damages under Count II of their complaint.
D. Attorney’s Fees
The Glicks devoted just one sentence in their post-trial briefs to explain the
basis for their request for attorney’s fees, which they say is “premised on Klein’s
egregious misconduct, throughout the proceedings.”251 The request is denied.
Under the “American Rule,” courts “do not award attorneys’ fees to a
prevailing party absent some special circumstance.”252 The “American Rule would
be eviscerated if every decision holding defendants liable for fraud or the like also
awarded attorney’s fees.”253 The “quite narrow exception” to the American rule
instead “is applied in only the most egregious instances of fraud or overreaching.”254
251
Pls.’ Post-Trial Reply Br. 21.
252
See Arbitrium (Cayman Is.) Handels AG v. Johnston, 705 A.2d 225, 231 (Del. Ch.
1997); aff’d, 720 A.2d 542 (Del. 1998).
253
Barrows v. Bowen, 1994 WL 514868, at *2 (Del. Ch. Sept. 7, 1994) (Allen, C.).
254
Arbitrium, 705 A.2d at 231.
54
To be sure, Klein should be held to account for the fraudulent conduct for
which this decision finds him liable. The Glicks, however, failed to prove many of
the grounds for their fraud claim and did not prevail on their fiduciary duty claim.
In short, this litigation was hard fought, hotly disputed, and involved some truly
disturbing conduct, but it did not rise to the level of such egregiousness so as to
warrant deviation from the American Rule. Accordingly, the Glicks’ request for an
award of attorneys’ fees is denied.
IV. CONCLUSION
For the reasons explained above, the Glicks are entitled to judgment in their
favor on Count III in the amount of $433,000, plus pre- and post-judgment interest,
and their costs as the prevailing party on the core issue in this case.255 Count I is
dismissed as moot, and judgment shall be entered in Klein’s favor on Count II. The
parties are directed to submit a form of final judgment within five business days of
the date of this opinion.
IT IS SO ORDERED.
255
See FGC Holdings Ltd. v. Teltronics, Inc., 2007 WL 241384, at *17 (Del. Ch. Jan. 22,
2007) (“For purposes of Rule 54(d), the ‘prevailing party’ is the party who successfully
prevails on the merits of the main issue.”).
55